What Is the 7-Year Rule for Care Home Fees?
Have You Heard About the 7-Year Rule for Care Home Fees? Here’s the Truth
Many families worry about the cost of care and whether gifting assets can help protect their finances. A common belief is that transferring assets at least seven years before entering care will prevent them from being considered in financial assessments. However, this is a misunderstanding. There is no official 7-year rule for care home fees—this concept originates from inheritance tax regulations, not care funding rules.
Understanding how financial assessments work is crucial for making informed decisions. In this post, we’ll explore the realities of care funding, the risks of asset transfers, and how to approach financial planning with confidence.
The Reality of the 7-Year Rule Myth
The idea that transferring assets seven years before care is a safeguard against fees stems from confusion with inheritance tax (IHT) rules. Under IHT laws, gifts made within seven years of death may be subject to taxation. If the donor survives for seven years, the gift is tax-free.
However, this does not apply to care home funding. Instead, local authorities investigate whether an individual deliberately transferred assets to avoid paying for care. This is known as deprivation of assets.
What Is Deprivation of Assets?
Deprivation of assets occurs when a person intentionally disposes of wealth to reduce their financial liability for care costs. This can involve:
- Gifting property or large sums of money
- Selling assets for less than their market value
- Transferring ownership of assets to relatives or friends
- Spending money excessively or irregularly
- Moving money into trusts or investment bonds
If a local authority suspects deprivation of assets, it can assess care fees as if the individual still owns the asset in question. There is no time limit on these investigations—authorities can review financial transactions as far back as they deem necessary.
What Assets Are Considered in Financial Assessments?
Local authorities conduct means-tested financial assessments to determine eligibility for care funding. These assessments consider:
- Property (if applicable)
- Savings and investments
- Income (pensions, benefits, and other sources)
Each UK nation has its own financial thresholds:
England (2025 Update)
- Upper threshold: £100,000 – Those with assets above this must fund their own care.
- Lower threshold: £20,000 – Individuals below this qualify for full financial support.
Scotland
- Upper threshold: £35,000 – Those above this must contribute to care costs.
- Lower threshold: £21,500 – Those below this qualify for full support.
- Additional support: Free Personal and Nursing Care (FPNC) payments are available.
Wales
- Upper threshold: £50,000 – Those above this must self-fund care.
- Care at home threshold: £24,000 for individuals receiving care at home.
Northern Ireland
- Upper threshold: £23,250 – Those above this must self-fund care.
- Lower threshold: £14,250 – Those below this qualify for full financial support.
How Local Authorities Assess Deprivation of Assets
Authorities consider three key factors when reviewing financial transactions:
- Timing: When was the asset transferred?
- Care expectations: Was the individual aware they might need care when disposing of the asset?
- Motivation: Was the primary reason for the transfer to avoid care costs?
If deprivation of assets is determined, the local authority can still include the value of the asset in the financial assessment, meaning individuals may still have to contribute towards their care fees.
Transactions That Are NOT Considered Deprivation of Assets
Not all financial transactions count as deprivation. Some routine expenses are exempt, including:
- Day-to-day living expenses (mortgage, rent, bills, food)
- Reasonable gifting for birthdays and special occasions
- Charitable donations
- Home improvements
- Transfers to a spouse or partner who remains in the family home
These transactions are considered normal financial activity and are unlikely to be challenged by local authorities.
Challenging a Deprivation of Assets Decision
If you or a loved one is accused of deliberately depriving assets, there are ways to challenge the decision:
- Provide documentation explaining the reasons for financial transfers.
- Demonstrate that the asset disposal was unrelated to care costs.
- Seek legal advice from a community care solicitor.
- Follow the local authority’s complaints process.
- Escalate the case to the Social Care Ombudsman if necessary.
Understanding your rights and having clear financial records can help protect against unfair claims of deprivation.
Property Ownership and Care Home Fees
Jointly Owned Property
If a home is jointly owned, only the individual’s share is considered in financial assessments. If a spouse or dependent continues to live in the property, it is typically exempt.
Transferring Property Ownership
Many people believe that transferring property ownership will protect it from care fee assessments. However, this is not guaranteed. Risks of property transfer include:
- Loss of control over the home
- Inheritance tax implications for beneficiaries
- Capital gains tax liabilities for recipients
- Legal complications if the recipient faces financial difficulties
If a local authority suspects the transfer was to avoid care fees, they may still count the property as part of the financial assessment.
Are Next of Kin Responsible for Care Home Fees?
Legally, next of kin are not required to pay for a relative’s care. However:
- Families may choose to contribute top-up fees for a preferred care home.
- If a relative signs an agreement to contribute, they are legally responsible.
- Any unpaid fees after a resident’s passing are settled by their estate, not their relatives.
Understanding these rules can help families make informed financial decisions without unnecessary worry.
How to Plan for Care Fees While Protecting Assets
Although care fees cannot always be avoided, there are legal ways to manage costs:
1. Payment Options
- Care Annuity: A specialised insurance policy covering long-term care payments.
- Deferred Payment Scheme: Allows individuals to delay selling their home until after their passing.
- Equity Release: Accesses funds from property without selling outright.
- Rental Income: Renting out property to generate income for care costs.
2. Life Interest Trusts in Wills
A Life Interest Trust allows a person’s share of a home to be placed in trust after their death, protecting it from future care cost assessments.
3. Equity Release & Investment Bonds
- Lifetime Mortgage: A loan secured against the home, repaid upon death or moving into care.
- Home Reversion Plan: Selling part or all of the property while retaining the right to live there.
- Investment Bonds: Some bonds may be disregarded in care fee assessments, but their income may still be considered.
Seeking Professional Advice
Care funding is a complex issue, and financial decisions should be made with expert guidance. If you need advice on managing care costs, Home Instead Yeovil, Sherborne & Bridport is here to help.
Contact our friendly team to discuss personalised care options and financial planning for long-term care. Call us today on 01935 577030 or visit our website athttps://www.homeinstead.co.uk/yeovil-bridport/.
Understanding care home fees and financial planning is crucial for securing the best possible support. Let Home Instead Yeovil, Sherborne & Bridport help you navigate this journey with expert guidance and compassionate care.
Areas We Serve
Yeovil, Bridport, Sherborne, Crewkerne, Weston, Martock, Somerton, Langport, Eastfield, Castle Cary, Bruton, South Petherton, Beaminster, Milborne Port and surrounding areas.
DT6 3, TA18 7, TA12 6, BA22 9, TA14 6, DT6 6, TA11 7, TA11 6, BA21 3, DT9 6, DT6 5, TA10 0, BA22 8, BA7 7, DT9 5, DT6 4, DT2 0, BA21 4, TA17 8, DT8 3, BA22 7, TA10 9, TA13 5, BA10 0, BA9 8, TA15 6, DT9 3, BA20 2, BA21 5, BA20 1, TA16 5, DT9 4, TA18 8
Office Address: Somerset Yeovil Innovation Centre, Barracks Close,
Copse Road, Yeovil,
Somerset – BA22 8RN
Phone: 01935 577030